MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Taxation & eCommerce
Chapter 6 Forder & Quirk
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Overview Developments in the taxation of electronic
commerce. Analysis of the design principles that shape
existing and new taxes on electronic transactions.
How Australia taxes and administers eCommerce
ATO response to eCommerce International response to eCommerce
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Initial Responses eCommerce was too insignificant to have a
major effect taxation Initially Internet was left tax fee Some wanted the Internet to be a tariff free zone Concern that countries with normal tax regimes
would lose tax revenue to tax havens
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Initial Responses Others argued to have a “bit tax.” To remove all taxes from Internet transactions
would heavily discriminate against non-electronic trading.
To impose a new tax on information also goes against the principles of taxation because it is highly discriminatory.
A bit tax would be almost impossible to implement using current technology.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Initial Responses How taxpayers could use the Internet and just
how widespread e-commerce could grow. Australia was one of he first countries to look
seriously at the impact of e-commerce on the tax system.
Australia released a report in 1997 then a second in December 1999.
Some people argue to have no taxes on e-commerce.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Initial Responses Developed countries strongly favour not
imposing any new taxes on e-commerce. The USA passed the Internet Tax Freedom Act
in 1998 that prohibits new taxes on the Internet. The World Trade Organisation aims to make the
Internet a tariff-free zone. The existing tax rules need to change to cope
with e-commerce.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Tax Design Basic principles need to be complied with when
introducing new or changing existing taxes. Members of the OECD agreed to try to base any
changes to their taxation of e-commerce on international cooperation and agreement.
The OECD agreed that five traditional principles should apply to any tax changes.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Tax Design These principles are:
1. Neutrality2. Efficiency3. Certainty and Simplicity4. Effectiveness and Fairness5. Flexibility.
Principles of the ATO:1. Neutrality2. The minimisation of compliance and administration
costs3. Privacy.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
The Australian Tax Environment The Australian taxes that e-commerce is most
likely to affect are: Income tax Pay-as-you-go (PAYG) tax GST Withholding taxes.
Tax problems arising from e-commerce: Effectiveness of the GST.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
GST Payable at point of each sale in the supply chain Vendor collects GST and sends it to ATO GST not payable on sales that occur outside Australia Vendor can claim credit for GST on previous sales in
supply chain (input tax credit) Some items are GST free e.g. fresh food, medicine etc. Input Tax Credits can be claimed by Vendor on a GST
free sale (i.e. Vendor gets a refund) Some sales are Input Taxed Sales e.g. bank account
fees, interest, superannuation. life insurance Input Tax Credits cannot be claimed by Vendor on an
Input Taxed Sale
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
GST on a Domestic ProductSale by Price GST on
SaleGST on inputs
GST Paid
Raw Material Suppliers
$50 $5 $5
Manufacturer $100 $10 $5 $5
Wholesaler $200 $20 $10 $10
Retailer $300 $30 $20 $10
Total $30
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
GST on an Import by a RetailerSale by Price GST on
SaleGST on inputs
GST Paid
Overseas Manufacturer
$100
Overseas Wholesaler
$200
Retailer $300 $30 Nil $30
Total $30
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
GST on an Import by a ConsumerSale by Price GST on
ImportGST on inputs
GST Paid
Overseas Manufacturer
$100
Overseas Wholesaler
$200
Overseas Retailer
$300
Consumer $30 $30
Total $30
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Income TaxIncome $60,000Less expenditure to earn income $40,000
$20,000Less tax free threshold $ 6,000TAXABLE INCOME $14,000Multiplied by marginal rate (17 cents) $ 2,380Less rebates $ 1,000TAX PAYABLE $ 1,380Less tax paid (PAYG) $ 1,000TAX DUE \ (REFUND) $ 380
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Withholding Tax Income is taxed at highest marginal rate
Income $60,000
Withholding rate (47 cents) $28,200
Compare with normal tax:Taxable Income $20,000Less tax free threshold $ 6,000TAXABLE INCOME $14,000Multiplied by marginal rate (17 cents) $ 1,380
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Tax Rates 2002 – 2003Taxable Income Tax on this income
$0 - $6,000 Nil
$6,001 - $20,000 17c for each $1 over $6,000
$20,001 - $50,000 $2,380 plus 30c for each $1 over $20,000
$50,001 - $60,000 $11,380 plus 42c for each $1 over $50,000
Over $60,000 $15,580 plus 47c for each $1 over $60,000
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Tax Challenges for eCommerce One transaction may consist of many separate
transactions Each separate transaction may be subject to
different countries tax regimes Each separate transaction may be separately
taxed Different taxes can apply to each separate
transactions See hypotheticals on pp 156, 157 & 163 of
Forder & Quirk
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
ATO Strategies Revenue impacts
Monitoring
Service Integration Improved information Interactive self help Software
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
ATO Strategies (cont.) Jurisdiction
International agreements
Administration Automation
Detection Move to Consumption Tax (GST) International cooperation
Research & Development
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
ATO Use of Internet The ATO foresees the that e-commerce is not
expected to have a significant impact on tax revenues for the next few years.
The ATO does not want to be caught out unprepared so has developed a comprehensive action plan.
ATO is taking advantage of electronic technologies. Making paying tax easier Detecting tax avoidance
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Paying Tax Made Easier ATO sees opportunities for improving its
services. Implementing Tax Reform:
Education Documentation online Facilitating payment Promoting electronic record keeping Improving ATO efficiency
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Improving Taxpayer Service: The Internet is the major medium being used by the
ATO to improve taxpayer service. Over 75% of income tax returns are lodged
electronically. Using the Internet to help the taxpayer. Businesses can register and get their Australian
Business Number instantly.
Improving ATO efficiency and best practice: Improvements in efficiency will cut costs for the ATO
and for taxpayers.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
E-Grant The Diesel and Alternative Fuels Grants
Scheme. Transport operators currently have to fill in about
70 to 80 pages of forms each year to get their money.
E-Grant is set to end all the paperwork. Truckies will soon be able to receive their
payment directly from the ATO.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Listening to the Community Make the tax experience better. Listening to what people need. The aim is not to change the law. The aim is to change the way of their business
by complying with the law.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Detecting Tax Avoidance Data collection from taxpayers
ABN TFN
Data exchange Government Departments AUSTRAC Other governments
Data modelling Detect transactions which are likely to be associated
with tax evasion
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
The International Tax Environment Consumption Taxes
Is tax collected in vendor or buyers jurisdiction? GST will apply if supply connected to Australia Importation is taxable but GST not collected if:
Arrive by post and value less than $1,000; or Value less than $250.
If imported by a consumer, the consumer pays the GST
How do you detect intangible supplies? Negligible impact detected so far
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
The International Tax Environment Income Tax:
Based on residence of taxpayer and\or source of income
How to determine when an electronic presence is enough to establish a taxable base in a country? OECD uses the concept of permanent rental\
ownership of a server Uncertainty is created in the application of traditional
source rules, income characterisation, apportionment, the application of traditional residence rules, transfer pricing and avoidance.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
The International Tax Environment Income Tax (cont.)
Double taxation agreements avoid a taxpayer paying income tax twice One country is given primary taxing rights; or Taxpayer can rebate tax paid in one country
against tax payable in other country Use of tax havens
Transfer pricing
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
The International Tax Environment The OECD response to e-commerce:
Informal round table discussion between business and government.
The formation of technical advisory groups (TAG’s). Areas the TAG’s deal with:
Technology Professional data access Consumption taxes Business profits Income characterisation.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
The International Tax Environment International Tax Administration:
There has been a focus on improving the administration of tax at the international level.
The Internet facilitates the automatic exchange of information in a standard format.
The Internet can overcome political, technical and language barriers.
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
The ATO’s International Involvement Heavy involvement in International Tax forums
especially the OECD. Development of international guidelines. International consideration of the impact of
growth in e-commerce. Guidelines for the exchange of data
Privacy and security concerns
MANAGEMENT & LEGAL IMPLICATIONS OF eCOMMERCE
Conclusion Some tax avoidance is possible using
eCommerce No real difference to tax avoidance in traditional
commerce eCommerce improves tax authorities ability to
prevent and detect avoidance eCommerce reduces businesses cost of
compliance with tax obligations